- BNP Paribas (BNPP) anticipates that the Bank of Japan (BoJ) will keep its policy unchanged at tonight's meeting but will widen the yield curve control (YCC) band to +/-100 basis points in July. According to BNPP, this tightening in monetary policy should be supportive of the Japanese Yen (JPY).
- BNPP also foresees the potential for U.S. yields to decline from current levels as the Federal Reserve concludes its tightening cycle. The bank believes that USD/JPY is likely to be particularly sensitive to these movements in U.S. yields.
- Additionally, BNPP notes that there has been verbal resistance to Yen weakness from Japan's finance ministry, which could introduce two-way risk for USD/JPY and limit the potential for significant further gains in the currency pair.
- Reports from life insurers released in April indicate that the majority of onshore life insurance companies plan to reduce non-FX hedged foreign-bond holdings. BNPP expects a similar repatriation by pension funds of foreign-debt exposure once the YCC band is widened.
- While BNP Paribas has revised its USD/JPY forecasts higher to account for a higher Fed terminal rate and a later widening of the BoJ's YCC, the bank continues to project a downward trend in USD/JPY. BNPP now forecasts USD/ PY to fall to 130 by the end of 2023 and further to 123 by the end of 2024, up from its previous projections of 127 and 121, respectively.
This is via the folks at eFX.
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The Bank of Japan statement is expected some time in the 0230 to 0330 GMT (10.30 pm - 11.30 pm US Eastern time) time window. Bank of Japan Governor Ueda will speak at 0630 GMT.
